There are three ETFs designed to be BRIC funds, none of which looked particularly enticing earlier this year. Not on reports of slowing Chinese growth or Brazil’s soaring inflation and scorched earth interest rate hiking campaign.
India’s plunging rupee and widening current account deficit did not make ETFs linked to Asia’s third-largest economy an attractive destination. The combination of Russia’s market volatility and its developed market growth rates did not send investors scurrying into one of the cheapest emerging markets. [One Good Chart: ETFs for Cheap Emerging Markets]
Fast-forward a few months and the BRIC ETFs are looking good. Really good, a situation we thought could materialize back in July. Over the past three months, the average return for the three BRIC ETFs is 14.7%, or about six times the returns offered by the S&P 500 over the same time. [BRIC ETF Rally Defies Slowing Economies, Social Unrest]
The “laggard” of the trio is the iShares MSCI BRIC ETF (NYSEArca: BKF) and why BKF is trailing its rivals is easy to put together: The ETF may allocate too much of its weight, 42.6%, to China. Over the past 90 days, the iShares MSCI Brazil Capped ETF (NYSEArca: EWZ) has been the top-performing coutry-specific fund offering access to one of the four BRIC nations.
Over the past month, the average return offered by EWZ and the comparable India and Russia ETFs is nearly 7%, but the largest China ETF is up just 0.8% over that time. That could be a sign the market has embraced the most controversial BRIC members, indicating that relative to the other three, China is seen as reliable by investors. [BRIC ETFs Get Hit With Outflows]
The SPDR S&P BRIC 40 ETF (NYSEArca: BIK) is the second-best performer over the past 90 days among the three BRIC ETFs, although BIK has a China weight of 52.3% and is heavily exposed to state-run companies.
A possible catalyst for BIK’s recently bullish ways could be valuation. Two of the most steeply discounted developing markets are China and Russia. Those countries account for almost 74% of BIK’s weight. For its part, Russia usually trades at a discount to its emerging peers, but earlier this year, Russian stocks became noticeably cheap relative to their own historical standards. [Don’t Forget This BRIC ETF]
The leading BRIC ETF over the past three months has been the Guggenheim BRIC ETF (NYSEArca: EEB). This is another easy scenario to explain. While EEB’s exposure to India and Russia is slight (about 13% combined), the ETF’s 46% weight to Brazil is nearly double its allocation to China.
With EWZ being the best, major single-country BRIC ETF over the past three months, it stands to reason that EEB, with the largest Brazil weight of the three BRIC ETFs, would be the leader of the pack. An upcoming index change could increase EEB’s China weight. [Guggenheim BRIC ETF to get More of a BRIC ETF]
Guggenheim BRIC ETF
